Market

Monday, November 5, 2012

FDI IN INDIAN RETAIL-WILL THE "PROMISED DREAM" FRUCTIFY?

The FDI debate does not seem to be fading away even after GOI notified the policy of 51% investment in retail business by foreign players. Probably the fervor with which the PM and other ministers are using this as an achievement of the government frequently, is giving opportunities to those opposing the new policy with equal vigor to keep the controversy going! Umpteen number of articles have appeared, supporting as well as opposing the move to allow foreign investors in retail business and one of the most illuminating critique which appeared recently gives a balanced view. Here is a take on this much discussed issue.

"In the mid-1980s, Pepsico came up with a proposal to bring in a 2nd horticultural revolution in Punjab. It was hailed as a path-breaking initiative that would put an end to the continuing distress on the farm. It was expected to usher in the latest technology, improve farm research and extension, create supply-chain infrastructure, and provide marketing linkages from farm to the fork. I remember the kind of excitement that prevailed all around. Politicians, bureaucrats, economists, agricultural scientists and even the BhartiyaKisan Union (BKU) joined the chorus. All my efforts to reason out the hollowness of the claims, based on Pepsico's own studies, were simply lost in the din and noise created by the drum-beaters. Some 15 years after the project was approved, Pepsico's horticultural revolution is all but forgotten. Agriculture has gone from bad to worse. The food bowl of the country has also become a major hot spot for farmer suicides. While the soft drink giant remains busy marketing its colas, Pepsico has not been held accountable for its failed promises. It will never be punished for selling a fake dream to the beleaguered farming community. It is now the turn of Wal-Mart and other big retail giants. FDI in retail is once again being projected as a panacea for all the ills plaguing Indian agriculture. FDI in retail will lay out back-end infrastructure, bring in a chain of cold storage and improved transportation thereby reducing crop losses; remove middlemen which rob the farmers of profits, and thereby provide him higher prices; bring in improved technology to help in crop diversification; and of course create millions of jobs. The cheerleaders are once again on the road. This time, it is the corporate controlled electronic media that is drumming up the hype. Having spent Rs 52-crore in two years for lobbying alone, and after the recent New York Times exposure showing how Wal-Mart bribed its way to control 50 per cent of the retail market in Mexico, the Union Cabinet finally allowed big retail to set shop. If Wal-mart could bribe its way in Mexico, what makes us think they have not been able to do so in India? The well reasoned argument by the author of the above analysis demolishes the oft repeated assertion by the government that FDI in retail is a panacea for solving the problems of unemployment and low income agricultural families in India. Some how the GOI seems to be a great admirer of Goebbels, the propaganda minister under the Nazi regime during World War II, who perfected the art of telling a lie million times to sound it as truth! For example the oft repeated figures of food losses used to justify FDI were totally divorced of truth, magnifying the losses several fold with no scientific basis! Similarly the argument regarding increased farm income once foreign players establish their mega stores in India or increased employment resulting from their investments cannot be sustained if experiences in other countries who jumped into the FDI band wagon earlier is any reckoner to go by. In stead of touting lies and half truths to justify the new policy, GOI should have the gumption to say that in a free economy competition is the drive engine for better efficiency and there fore domestic players will become more efficient in the face of international competition. The allegation that foreign majors have bribed the decision makers for promulgating this new policy is a serious one and must be investigated for finding the truth.